Heart of Gold
By Jon Nadler
Apr 23 2008 9:06AM
www.kitco.com
Good Morning,
Gold prices came under renewed selling pressure in the pre-NY opening hours this morning, this time responding to a declining crude oil and rising US dollar value. Values quickly fell towards the lower $900's as participants continued to be frustrated by the metal's recent lack of response to outside drivers and by investor apathy. Yesterday's ECB signals that interest rates will remain at least on hold or perhaps be raised in case inflation gets to uncomfortable levels has been somewhat offset by the fact that Fed watchers no longer expect a half point cut next week, and even a quarter point is beginning to look less than certain. At last check the dollar was shown at 1.5945 against the euro and at 71.60 on the index, while oil was trading about $2 lower (at $117.45) than its record on Tuesday.
New York spot trading opened $8 lower, quoted at $908.20 on the bid side. Today's calendar offers only mortgage applications and consumer comfort index figures, thus the main direction in gold will be...mixed as it has been since late last week. While the current pause is still seen as a period of consolidation, the risk of a breach of the $900 level remains in place and could take bullion to the $880/$890 area. We would expect some fresh buying to come into the market at such levels from quarters that are currently holding out on the sidelines. Silver lost 30 cents to $17.31 while platinum was off by $20 at $2005 and palladium slipped $6 to $450 per ounce. Projections from the firm Investec yesterday still put the high in platinum this year near $2400 on the near half million ounce deficit that could be tallied.
We keep getting a slew of correspondence from North American jewelers, designers, and fabricators who are finding it extremely difficult to make a living under current gold price conditions. Herewith, and excerpt from an e-mail just two days ago, from a Los Angeles businessman in the industry:
"While retailers on New York's 5th Avenue and Beverly Hill's Rodeo Drive might not feel the impact of the recent rise in the price of the metals, the small scale retailers at the local strip mall and the family owned jewelers are finding it more and more difficult to entice customers to purchase a ring or a necklace they used to be able to buy back in 2000 for $150, but now cost more than $500.
I can tell you now that the gold price, being more than three times higher than it was back in 2001, is severely impacting the jewelry sector in a much more negative way than it is being portrayed by mainstream media. And while most of America is reluctant to use the terms, "Recession" and "Inflation", we, in this market, have been dealing with the reality that inflation over the past four years has led us into this recessionary period.
While my family and company are able to manage through this difficult period by cutting back our expenses and keeping our purchasing to a minimum, we receive weekly, almost daily, reminders of the negative impact of the recent surge in the price of gold when we receive calls from friends within the industry alerting us of yet another closing of a retail store or factory...companies that have been around for generations, here in the US or abroad in Italy, Turkey, Korea, etc...
This is an awful period for those of us in the jewelry sector. With our volume down 50-70% since 2001, it is most definitely not a happy time for us, not just my company, but for the gold jewelry industry in general. I believe the financial institutions recent interest and attraction to the bullion was one of the worst things that could have happened to the jewelry industry."
Mother's Day 2008 might be a trying time for the gentleman.
Well, at least one jewelry trade group wants to do something about this situation. India's The Hindu reports this morning that:
"Apex body of the bullion and jewellery traders All India Sarafa Association on Wednesday appealed to the government to ban futures trading in gold and silver on the Multi Commodity Exchange. The association, at its annual general meeting, unanimously passed a resolution asking the government that in the interest of the traders and consumers gold and silver trading should be banned on the MCX.
The association's President Sheel Chand Jain submitted a memorandum to the Prime Minister Manmohan Singh and Finance Minister P Chidambaram to take initiatives to stop futures trading in precious metals. In the last one year from April 2007-2008 prices of gold surged by about 45 per cent from around Rs 9,000 to the over 13,000 recently, while silver rose by around 35 per cent from about Rs 19,500 to over 26,500 per cent.
In view of a vast fluctuation in the gold and silver prices, which created both confusion and panic in the minds of consumers, the government should take an immediate step, Jain said. He said the futures trading ruined bullion trade as prices rose mostly on speculative base with hardly any physical buyer in the market.
"There is no reason for such volatile fluctuations in the gold and silver prices where a large number of small traders indulging in the future trading throughout the country," Jain said. "
Not sure if the association will succeed with this call to arms. Most likely, not. However, it is well worth keeping in perspective the fact that India has been, and remains the largest gold consumer globally and that its jewelry industry is an essential part of the economic fabric of the country, in the same way that gold has been an essential part of Indian life and culture for centuries. To put it into further context, the 72 tonnes of gold that the ETF vehicle amassed during the first quarter of the year would be about what India should have imported in just the month of January, had there been some value perceived in a $900+ gold price. About five tonnes were actually brought into the country.
We would watch oil today as the absence of correlation that gold is exhibiting of late to its price surges appears to survive on pullbacks in black gold. Tomorrow and Friday promises more impact drivers.
On a final note, if you are interested in silver (and who isn't these days?) and want to get the real picture of what is going on in that market, do yourself a favor and make a small investment into the CPM Group's 2008 Silver Yearbook, set to be released on the 29th of the month. Rather than trying to decide which particular silver pundit may be in possession of the correct set of facts regarding current market conditions, you now have the opportunity to go straight to the source that actually gathers and dissects data for a living and learn the hard numbers and actual trends in the metal. Kitco is a proud sponsor of this quality research and we believe you will benefit from delving into its contents. You will find the book available here: http://store.cpmgroup.com/
Happy Trading.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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